Should Microsoft Worry About Google's Chrome?

Silicon Valley watchers like to view the competition between Google and Microsoft through the prism of all-out war. And the search giant's announcement that it is developing a free operating system, dubbed Google Chrome OS, certainly seems to fit the metaphor: an invasion onto Microsoft's home turf, the bedrock of the $200 billion company, just as Microsoft's new search offering, Bing, has finally chipped away at Google's lead. (NEWSWEEK is a content partner of Microsoft's MSNBC and MSN.)

Perhaps. But those hoping for immediate fireworks may be disappointed. The Chrome OS is still a long way off—it won't be released until the second half of 2010, an unusually long lead time for Google, which likes to make services available as soon as they are announced. The OS will initially be used to power netbooks (small and cheap devices used mainly for Web browsing), whose sales have been growing substantially, but still represent just a sliver of the overall PC market. And the Chrome browser itself has struggled to catch on with consumers, eking out a roughly 2 percent market share eight months after its release, a fourth-place showing.

Make no mistake—Google entering the operating-system arena is a major development. It's likely to spur innovation because Chrome OS will be open source, meaning that programmers around the world will be able to tinker with it. The software will be free, so machines that run it will be cheaper for consumers. Google promises that Chrome-based devices will boot in seconds, resist malware, and not need frequent updating. "Operating systems that browsers run on were designed in an era where there was no Web," the company wrote in a blog post announcing Chrome. "It's our attempt to rethink what operating systems should be."

Not everyone is sold. "It's way overhyped," says Michael Silver, a research vice president at Gartner, about Google's chances at challenging Microsoft's longtime OS dominance. "This really won't amount to anything for a year, and in terms of significant competition to Microsoft, we're talking much longer before this has the possibility of making any sort of dent." Google says that Chrome, initially targeted at netbooks, will eventually be able to power full-size desktop PCs. Microsoft declined NEWSWEEK's request for comment.

Businesses could then opt for Google's free OS over Microsoft's Windows. But corporations have been slow to adopt Google's free version of the Microsoft Office suite—Google removed its longtime "beta" tag from its e-mail and document apps this week in part to better appeal to corporate users. Silver thinks Microsoft's lead is safe for now. "The corporate market will care the day the CEO or CFO brings in a netbook running Chrome and says, 'I want my mail on this,' " he says.

Today, it's netbooks that are the darling of the PC industry, though they represent only a fraction of total sales. Worldwide shipments of the lightweight devices are up 68.5 percent in 2009, while overall PC shipments are expected to fall by 9.5 percent, according to the market-research firm iSuppli. The same firm forecasts that 22 million netbooks will be sold this year, compared with a total of 134 million PCs. One possible bottleneck in the growth of the netbook market in the United States is a wireless Internet infrastructure. "What you need, and what the market is missing right now, is ubiquitous connectivity," says Richard Shim, an analyst at IDC. Although Google's Chrome browser has offline features, the point of the operating system—and netbooks in general—is to be online all the time. Wireless carriers will likely need to develop more flexible billing plans for data access—like daily or monthly options—and make sure their networks can handle a surge in traffic.

As Google bids to become a greater part of Web surfers' lives—from a little box on a Web page to the guts of the machine itself—it has in its favor a massive reservoir of cash, talent, and (privacy concerns notwithstanding) good will on the part of users. What's more, Google is betting on a future in which computing is decentralized, where users' data and applications reside in the "cloud"—servers accessible from anywhere. Microsoft is largely dependent on centralized computing and its cash cows—the bulky Windows operating system and the Office suite of local applications. Most of the innovation is headed in Google's direction, and the consequences could very well blow up Microsoft's dominance of how users interact with PCs. But the fuse will be long to burn.